Mobile Competition Welcomed, But MTN Hard To Beat

The launch of Swazi Mobile brings some much-needed competition to Swaziland's mobile market. However, incumbent MTN was quick to reduce its tariffs and will benefit financially from network sharing, demonstrating that it will not be easily displaced by the privately owned newcomer.

Swaziland's second mobile network operator launched in 28 cities in early July 2017, offering tariffs as low as USD0.05 per minute (prepaid, off-peak) and undercutting MTN by a significant margin. The company aims to extend its 2G/3G/4G network to 80% of the population by the end of September, ending MTN's long-held monopoly. We expect Swazi Mobile will mostly cannibalise MTN's existing user base, although there is potential for both companies to attract new users as a result of price competition. Ultimately, however, MTN will prove hard to dislodge.

New Player Will Find MTN Hard To Dislodge

Swaziland Mobile Market Forecasts

f = BMI forecast. Source: BMI, MTN

Swazi Mobile is backed by local businessman Victor Gamedze, but plans to sell a 33% stake to Swazi citizens through a listing on the Swaziland Stock Exchange. The National Industrial Development Corporation of Swaziland has indicated its interest in investing. Initially, we had been sceptical that a privately-owned player would be able to build a sustainable business in competition with a highly experienced multinational such as MTN. Similarly structured ventures have typically failed to launch in other African markets and we felt that selecting Swazi Mobile over other contenders such as Orange and Viettel amounted to a missed opportunity ( see 'Competition And Regulatory Reform Key For Growth', November 2 2016).

We remain sceptical that Swazi Mobile - at least in its present form - will survive to maturity, as MTN has the scale and financial resources to compete aggressively with the newcomer. The incumbent has agreed to share infrastructure with Swazi Mobile, but this is an expense the new entrant will not be able to bear for too long. Investing in its own infrastructure is imperative, but low pricing will impede its ability to reinvest in networks. MTN currently reports ARPU of USD8 per month in Swaziland, but manages to survive on much lower rates in other African markets and can afford to engage in a protracted price war.

Swazi Mobile could also come under pressure from a third front as state-owned wireline operator Swaziland Posts and Telecommunications Corporation (SPTC) secured the country's third mobile licence in December 2016. SPTC must first sell its 41% stake in MTN Swaziland and restructure itself into distinct wireline and mobile-centric businesses; this could take up to three years, in our view, and SPTC could look to take on one of the failed bidders for the third licence as an investor or partner. Orange and Viettel lost out to Swazi Mobile in 2016; both are highly experienced African mobile market players and can afford to compete aggressively on price in order to establish themselves.

Mobile penetration in Swaziland reached 72% in 2016 and we expect this to fall over the period to 2021 as population growth will run at a faster rate than mobile adoption. We anticipate Swazi Mobile will concentrate mostly on persuading MTN customers to switch to its network over the next three years, rather than targeting new users in underserved areas. We do not expect that scenario to change significantly if SPTC joins the fray.